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5. Copyright Contract Law

The producer Multimedia has created a new fantastic product which combines several hundred texts, images, image sequences and bits of music originating from a number of famous authors and composers. Multimedia's legal advisor explains that he will first have to locate each individual author and composer and conclude an individual contract on every individual component part;

where the author or composer is deceased. Multimedia must negotiate with the heirs. The same applies, he is informed, if he wishes to incorporate his own earlier analogue productions; for under German Copyright law Multimedia was not able to acquire the rights to digital exploitation of pre-existing productions although he was explicitly granted all rights in the previous contracts. Here again, each and every author, composer and rights holder must be consulted.

Even if it were possible to obtain the consent of all the authors and composers addressed, in view of the large number of rights holders involved, it would have to be feared that the license fees payable would be so expensive that the product could not be sold in sufficiently large quantities and that it would be necessary to drop the production altogether. At the same time. the producer himself does not have a clear idea of how to protect himself contractually against unauthorised further use of his future product and what a reasonable price would be for exploitation of, e.g.. a protected film sequence within his multimedia product. Should he negotiate a lump sum payment or a percentual share in the net retail price of the CD ROM? How will the license fee be calculated if the product is made available on-line?

Digitisation and networking give rise to problems in the area of copyright contract law as well. Application of the

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legislative provisions (Secs. 31 et seq. German Copyright Act) is the focal point of interest. The main issue is the extent to which digital exploitation of works constitutes a new and unknown means of utilisation in the sense of Sec. 31(4), German Copyright Act. If this is the case, then one must consider how to alleviate the resulting obligation to obtain subsequent licenses (5.1). To a certain extent, in practice the loss in technical control can be countered by a corresponding contractual framework (5.2); finally, one should consider which of the different types of collective, joint and centralised licensing would best take into account the user's demands for a simple and trouble-free acquisition of rights (5.3).

5.1 Substantive Copyright Contract Law

On the one hand, providers of digital off-line or on-line products or services require rights in a previously unimaginable number of individual protected works. In this respect, one may ask whether the acquisition of rights should not be facilitated. On the other hand, pursuant to Sec. 31(4), German Copyright Act, any disposition or obligation made with respect to manners of use that were unknown at the time of conclusion of the relevant contract shall have no legal effect.

In order to facilitate the acquisition of rights, copyright law has created the instruments of statutory and compulsory licences as well as mandatory administration of exclusive rights by collecting societies. The difference lies in the degree to which the exclusive right is limited: whereas a statutory licence permits the user to utilise the work on the basis of the Act, meaning he or she may commence use immediately and pay remuneration subsequently, in the case of a compulsory licence he must first obtain the consent of the author, who however is obliged to grant it. As regards the mandatory administration of rights by a collecting society, the exclusive right is no longer exercised by the individual author but by the collecting society. [Fn. 38: As adopted in the EU Directive on Satellites and Cable TV with respect to the exclusive rights of simultaneous, unaltered cable re-broadcasting of foreign radio broadcasts.]

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It would be advisable to exercise restraint in employing such restrictions on author's rights in the future, in view of their exceptional character. Anyway, currently applicable international law (RBC; TRIPS) prohibits the use of statutory or compulsory licences in fields other than radio broadcasting and phonogram production. [Fn.39: Under German constitutional law as well, an excessive encroachment upon existing rights would be difficult to justify.] Although such licences may well satisfy the needs of multimedia producers, it does not appear advisable to introduce such involuntary licences in order to solve the problems involved in acquiring digital rights. The same consideration applies with respect to a possible extension of the presumption of assignment of rights in cinematographic works anchored in Secs. 88 and 89, German Copyright Act; extension of this presumption to multimedia works made available off-line or on-line is not advisable. It is true that acquisition of the rights would certainly be facilitated, yet in the end this would not offset the loss of control suffered by rights holders. An additional aspect is that producers active in the digital environment would like to be able to incorporate other works and achievements without difficulty, but are not likely to release their own resulting products for similarly easy incorporation into other works. Hence, the solution to the problems of acquisition of rights should be sought at a technical and administrative level, in particular by establishing so-called clearing centres (see point 5.3).

The second contractual law problem arising in the sphere of digital exploitation of works and achievements lies in the fact that, according to the provision laid down in Sec. 31(4), German Copyright Act, to the benefit of the author, dispositions and obligations with respect to means of utilisation that were unknown at the time the contract was concluded do not have any legal effect. According to case law, this applies where a new means of utilisation is distinguishable from a technical and commercial point of view

unaltered cable re-broadcasting of foreign radio broadcasts.

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the means of utilisation may have been known at the time of conclusion of the contract, but its commercial implications could not have been foreseen by the author at that point in time. [Fn.40: Unless the author consciously accepted the risk of the future development; Federal Supreme Court decision, 1995 NJW 1296 - Videozweitauswertung III. In addition. Sec. 31(4), German Copyright Act, also applies in relations between authors and collecting societies, at least inasfar as the author assigns his or her rights voluntarily; see Federal Supreme Court decision, 1986 GRUR 62, at 65 - GEMA-Vermutung I.] In other words: where Sec. 31(4), German Copyright Act, applies, the digital rights remain vested in the authors even though they intended to assign all rights to the publisher or producer in the original contracts; in certain cases it will be necessary to obtain subsequently additional licences . [Fn.41: As held by the Federal Supreme Court with respect to exploitation of older films on television (Federal Supreme Court decision, 1982 GRUR 727, at 730 Altverträge: no longer new in 1939), and on video (Federal Supreme Court decision, 22 IIC 574 (1991) Secondary Exploitation on Video: unknown in 1968).]

From a technical point of view it is easy to distinguish exploitation of works in digital form from previous kinds of analogue exploitation. Hence, application of Sec. 31(4), German Copyright Act, turns upon the commercial distinction being possible and on the date as at which the means of utilisation was known. According to the opinion expressed by this author the following distinction should be made:

  • where analogue processing stages are simply replaced by digital steps within a production process in order to obtain a product that is still analogue, from a commercial point of view it is not possible to speak of a different means of utilization; [Fn.42: images as a new, independent manner of use in the sense of Sec. 31(4), German Copyright Act.]

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  • the same applies where analogue broadcasting signals are simply replaced by digital signals, since neither does this necessarily increase the number of radio and television users nor does it alter decisively the manner and dimensions of use; [Fn.43: As held recently in a Federal Supreme Court decision, 1997 NJW 320 - Klimbim .]

  • in contrast, the prevailing opinion in the literature is that digital use, e.g. on CD ROM, of material licensed for printed media, as well as inputting and making available of such material in the form of generally accessible on-line databases, do constitute a new means of utilisation from both a technical and commercial point of view.

The question as to when a certain digital use should be considered to be known remains to be clarified. The only German court decision to date in the digital context applied Sec. 31(4), German Copyright Act, to the incorporation of music on digital data carriers (DCC, MD, DAT and in particular CDs) and held this means of utilisation to have been unknown technically in 1971. [Fn.44: Decision of Düsseldorf Higher Regional Court, 1996 NJW-RR 420.] The point in time at which this means of utilisation became known - although a distinction must be made in individual cases (music CDs were known before CD ROMs, and these probably after on-line databases) - may be set at around the beginning of the 1990s. [Fn.45: Maaßen , 1992 ZUM 338, 349 considers 1988 to be the decisive date for digital scanning of images becoming known.]

In practice, the obligation to obtain subsequent licences of digital rights in any case in which Sec. 31(4), German Copyright Act, applies has proved to be an almost insurmountable barrier to the marketing of digital products, where a vast number of rights require subsequent licensing.

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This is the case with new editions of back numbers of periodicals, with encyclopaedic works, but also affects the digital exploitation of analogue archives of newspapers and broadcasting companies. In order to avoid obstructing the digital access desired for information policy reasons, with regard to these rights it might be advisable to introduce general mandatory administration by collecting societies. This would mean that the producer would no longer have to acquire the digital rights from each individual author (or his or her heirs) , but would be able to obtain them in total from the collecting societies; at the same time he would not have to fear disturbance of his digital exploitation by outsiders. From the authors' perspective, such a solution would also be advantageous: they would no longer be forced to look after the subsequent individual licensing of rights that are frequently of no particular value to them, but would be able to rely on a potent agent to negotiate their rights. Clearly, the exact conditions of such mandatory administration of rights by a collecting society should be examined in more detail. In particular, it must be ensured that the original producer alone (publisher, broadcasting company) is able to acquire the rights from the collecting society, and not any third party.

Introduction of new statutory or compulsory licences in order to facilitate the acquisition of rights required for the production of off-line multimedia products and on-line databases is not recommended.

In contrast, in certain individual cases (e.g. for publication of back numbers of periodicals on CD ROM or for digitisation of previously analogue archive material), it is recommended that administration of digital rights which have previously remained vested in the author pursuant to Sec. 31 (4), German Copyright Act, be carried out exclusively by collecting societies.

5.2 Contracts in Practice

In practice, a distinction must be made between prior contracts (i.e. contracts concluded in the past) and newly concluded contracts.

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As regards prior contracts that were concluded before the points in time mentioned in point 5.1, there is the above-mentioned problem that the rights to digital exploitation have not been assigned to the licensee even where the parties intended an overall transfer of the rights. In contrast, contracts concluded after the point in time decisive for Sec. 31(4), German Copyright Act, that do not mention digital exploitation explicitly, shall be interpreted in good faith and with consideration to the customs of the trade (the same applies where, contrary to expectation, the case law does not apply Sec. 31(4), German Copyright Act). In this respect the principle of the so-called purpose-of-grant rule applies, according to which it is assumed that the author wished to assign all the rights necessary in order to satisfy the purpose of the contract, just as he or she retains all those rights assignment of which to the licensee is not necessary in order to fulfil the purpose of the contract. [Fn.46: See Sec. 31(5), German Copyright Act. A similar provision applies pursuant to Sec. 43, German Copyright Act, to employment relations; Sec. 43, German Copyright Act, continues to apply to databases pursuant to the EU Database Directive. In contrast. Sec. 69b, German Copyright Act, in its implementation of the EU Computer Program Directive, lays down a more far-reaching specific provision for computer programs created in the course of employment or service relationships.] Determination of the purpose of the contract depends decisively upon the scope of exploitation intended by the parties and upon the kind of exploitation the licensee has previously engaged in within the context of his commercial enterprise. An author who assigns the reproduction right to a multimedia enterprise, for example, certainly agrees to digital exploitation; a person, however, who concludes a contract with a publisher who previously focused on publishing volumes of poetry, will in case of doubt not be deemed to have authorised digital exploitation when he or she assigned the reproduction right.

In order to avoid such doubts from the outset, it would be advisable to incorporate into new contracts provisions that explicitly regulate the rights with respect to exploitation of protected works and subject matter in digital form in both

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off-line and on-line media (something that is already taking place in practice). However, it is not possible to give general advice as to the details of such contractual provisions, in view of the variety of works and the different kinds of exploitation involved. It is possible to negotiate all the digital rights upon conclusion of the contract and to provide for specific remuneration, which may still consist of a lump sum payment or a percentage share in the proceeds, or for no additional remuneration at all. Where the parties are not yet sure whether the licensee will in fact require the digital exploitation rights, then they may agree on an obligation of subsequent grant of such rights or on subsequent negotiations in good faith. The main difficulty in practice is determining the reasonable amount of remuneration for the digital rights and the criteria according to which the remuneration should be calculated (number of connected terminals, of users, of screen displays or of print-out copies, etc.) . In this context, for the meantime one may operate with remuneration solutions or even assignment of rights that are limited in time; in such cases it would be important to negotiate a clause determining how investments should be compensated upon termination of the contract. In any case, it is likely that in the digital environment creators of contents will in the end earn much less than was previously the case in the analogue sphere; this results from the comparatively low final retail price of digital off-line media in particular, and from the large number of creators involved in a production, who must share the remuneration.

5.3 Clearing Centres and Joint Management of Rights

In the digital environment use of protected material is rapidly becoming a mass business. As a rule, the production of a single CD ROM requires acquisition of a large number of individual rights; this applies especially to on-line databases. [Fn.47: See supra point 4.5. on the problem of largely uncontrollable mass use.] This gives rise to the question as to which structures are suitable and capable of satisfying the needs of the copyright industry in licensing without difficulty and at

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low cost, without encroaching too far upon the author's interests in the most individual exploitation possible.

In such cases where, in the face of mass use of their works, it was previously impossible or impracticable for authors to manage their rights themselves, they were assigned to a collecting society, which then managed the rights collectively on behalf of all authors vis-à-vis the users. [Fn.48: In essence these are so-called secondary exploitation rights, i.e. rights that are not included under the first exploitation but merely concern economically subsidiary types of exploitation and/or which authors are unable to manage themselves.] Moreover, the majority of statutory claims to remuneration under the German Copyright Act can only be administered by collecting societies (including in particular the royalties for photocopying and lending). Collecting societies are legally recognised monopolies which are subject to an obligation to conclude contracts (Sec. 11, Copyright Administration Act), i.e. they may not refuse permission to a user who pays or at least deposits the tariffs they have established. [Fn.49: The tariffs are published in the Federal Bulletin (Sec. 13, Copyright Administration Act). The collecting societies are obliged to conclude collective agreements with associations of users (Sec. 12, Copyright Administration Act). If a user considers the tariff demanded to be too high and if agreement is not reached, he may nevertheless commence use provided that he deposits the remuneration demanded; before the courts hand down a binding judgement, the matter must be presented to the arbitration board at the German Patent Office, which attempts to achieve an amicable settlement (Sees. 14 and 16, Copyright Administration Act).] For this reason they are not permitted to grant exclusive licences; an additional aspect is that rights holders have essentially relinquished their control over establishing the tariffs with respect to the rights managed by the collecting societies. In the digital environment this kind of licensing by collecting societies is viable where rights holders are not absolutely set on retaining control over individual works, where the

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individual works seem interchangeable to a large extent, or where the commercial dimensions of the exploitation of the works are relatively limited (e.g. rights in small parts of works; published literary works and contributions to periodicals for use in so-called in-house communications systems, etc.)

In order to satisfy rights holders' demands for increased control and users' (especially multimedia producers') demands for facilitated acquisition of rights, as favoured by the EU Commission in its Green Paper, [Fn.50: On the Green Paper of the EU (at 68 et seq .) see infra point 8.3.] the collecting societies have in the meantime developed the model of a so-called Clearingstelle Multimedia (CMMV) , [Fn.51: See on this point Kreile & Becker, GEMA Yearbook 1995/1996, at 68, 90 et seq . (available at http: //www.gema.de/publik/jahr96/mm.html). Further information is available at http: //www.gema.de/aktuell/cmmv.html. Institutions on which the German CMMV is based are the British CLARCS (Copyright Licensing Agency's Rapid Clearing System) and the US CCC (Copyright Clearing Centre), whose activities are limited to the grant of authorisation for analogue photocopying. A project comparable to the German CMMV is planned in France under the title SESAM.] According to the model all collecting societies will cooperate within a joint organisation which will be the joint addressee of users' enquiries and wishes with respect to digital rights (the so-called one-stop shop). During its first phase of operation the CMMV will concentrate on providing information. [ Fn. 52: There are a number of other initiatives as well, such as the EU-supported, private EISS project which also aims to establish in Germany an information database containing the names and addresses of photographers and right holders in images.] Enquiries concerning rights holders and licensing conditions with respect to individual protected works will be answered by CMMV on the basis of its own information or passed on to the

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relevant rights holders, and the relevant information subsequently communicated to the person making the enquiry. CMMV would only be able to grant licences in a second stage of development which is still in planning, provided that the rights holders - who would still be able to determine the terms of use and in particular the amount of remuneration to be requested - explicitly authorise CMMV via the collecting societies to undertake such direct licensing.

Currently there are a number of barriers preventing realisation of the second stage of development. Firstly, owing to Sec. 31(4), German Copyright Act, [Fn.53: See supra point 5.1. on this issue] the majority of collecting societies currently have a very limited number of digital rights, if any, at their disposal. Although recent rights management contracts contain an express reference to digital rights, rights holders have been extremely slow to assign these rights to collecting societies. In view of the legal and especially commercial uncertainties with respect to digital exploitation of works, at the moment the majority of rights holders are unwilling to relinquish control over their rights. In the area of music rights administered by the GEMA, there is the additional problem that in previous rights management contracts composers and rights holders retained the so-called synchronisation right (i.e. the right to combine music with other types of work) , so that they are able to control the use of music in digital productions if they so desire in an individual case. Finally, problems of antitrust law would be likely to arise if standardised terms of use were established outside the framework of the Copyright Administration Act (terms which would doubtlessly facilitate the future activities of CMMV at the second stage of development currently in planning).

It remains to note that all participating circles are called, upon to develop and implement solutions that contribute towards the smoothest possible legal transactions which are satisfactory to all sides. Joint licensing (clearing centres) will probably play a particular role.

© Friedrich Ebert Stiftung | technical support | net edition fes-library | Juli 1999

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